Cohen first explained that borrowers cannot simply be arrested
for not paying their loans.

"Aker wasn't arrested because he owed a student loan," Cohen told
Business Insider. "He was arrested because he ignored a court
order to show up."

Indeed, the Consumer Financial Protection Bureau
has cautioned that if "you ignore an order to
appear in court, a judge may issue a warrant for your arrest" and
that "you should never ignore a court order."

Still, Cohen explained that if you default on your federal
student loan — meaning that you miss nine consecutive monthly
payments — the federal government can come after you in four
different ways.

W-2 wage garnishment

If you are W-2 wage earner, the government can garnish your wages
with a 30-day warning, and it doesn't need a lawsuit to do
so.

Typically, a debt collector will call a borrower's
human-resources department to verify they are an employee. That
information is passed along to a guarantee agency or to the US
Department of Education, so either one can move forward to
collect on the debt via the wages.

Cohen cautions borrowers in this situation to move quickly and
request a hearing on the wage garnishment. This temporarily stops
the process and allows the borrower to work out alternate payment
strategies with the loan servicer.

"It's quite messy," he said. "If someone doesn't quickly get on
their feet during that 30-day period, the garnishment will
probably happen."

Social Security garnishment

If a borrower doesn't work, but collects Social Security, the
federal government can garnish that money.

"That's really hard because you are dealing with people who are
barely surviving as is and now you're taking more money from
them," Cohen explains.

Those instances bother him the most, because individuals living
on Social Security typically don't have enough income to be
responsible for making federal-loan payments.

He attributes this to a communication issue where not enough
people know they qualify for income-driven-repayment (IDR) plans.

IDR plans allow borrowers to pay a percentage of their
discretionary income toward student loan bills each month. If
your discretionary income isn't above a certain level, however,
your payment will be zero, until you start earning more income.

If you earn at or below 150% of the poverty-line income, your
payment will be $0.

Federal tax-refund garnishment

Employees who file tax returns normally look forward to getting
their refunds back in the spring. But if you've defaulted on your
federal student loan, don't expect to get your refund, according
to Cohen.

The federal government will use the return amount to pay down the
principal and interest on student loans in default.

"My advice on that is don't file your tax return," Cohen said.

He explained that if you're due a refund, you have up to three
years to file. Work on getting yourself out of default and then
file the return. There's no penalty to postpone filing your
refund.

Lawsuit

If you're not a W-2 wage earner, don't receive Social
Security, and aren't due back a tax refund, the government's
last option for collecting on a student loan is to sue the
borrower.

It's the situation most self-employed individuals find themselves
in, according to Cohen. And it's what happened to Paul Aker.

A statement from the US
Marshals claims that they "spoke with Aker by phone and requested
he appear in court, but Aker refused. A federal judge then issued
a warrant for Aker’s arrest for failing to appear at a December
14, 2012, hearing."

Aker claims he never received any notification of the court
order.

Private loans

Private-loan collection operates separately from federal-loan
collection. Unlike the federal government, private lenders are
under no obligation to offer deferments or
income-driven-repayment plans.

Wikimedia
Commons

As they can't garnish W-2 wages or Social Security payments,
private lenders must pursue legal action in court.

"The only remedy that a private lender has is to sue you, and
they are suing you under state law and every state differs,"
Cohen said.

His advice for borrowers whether they have federal or private
student loans is to pay attention to mail and to answer the
phone.

If a borrower ignores calls they are taking a defensive rather
than an offensive position. There are likely a number of
solutions that can borrowers can take advantage of to get
themselves out of default.